Britons are being warned that the state pension triple lock is currently “under scrutiny” from the Department for Work and Pensions (DWP) amid mounting concerns over its long-term sustainability.
Under the triple lock, state pension payment rates increase every year in line with either the rate of consumer price index (CPI) inflation, average earnings or 2.5 per cent; whichever is the highest.
Thanks to the payment metric, pensioners have been awarded significant income boosts annually with the state pension rising by as much as 11.1 per cent in recent years.
Analysts, including NerdWallet’s money expert Amy Knight, have highlighted the significant financial burden imposed on the British taxpayer due to the state pension triple lock.
“Funding the state pension is a huge cost for the Government, so it’s bound to come under scrutiny,” Knight said.
She pointed out that approximately a quarter of all Government spending is allocated to social security, which includes both the state pension and working-age benefits such as Universal Credit.
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The state pension triple lock is “under scrutiny”, according to experts
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Current estimates predict the state pension could rise to £13,000 per year if the triple lock is maintained beyond the next General Election with all major parties having pledged to keep the metric last year.
The Bank of England’s latest forecast suggests the CPI rate of inflation could reach 3.7 per cent later this year, affecting essential goods and services prices.
Knight explained: “If the full new state pension rose by 3.7 per cent next year, this would equate to an increase of around £8.50 per week.”
For those receiving the basic state pension, the increase would be approximately £6.50 per week.
Pensioners will get a payment boost this April
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“If wage growth cools off and inflation tracks sharply upwards as expected, September’s CPI figure could exceed the increase in average earnings,” Knight added.
Pension provider Aegon has called for a comprehensive debate on creating a sustainable state pension system, proposing a three-year smoothing approach as an alternative to means testing.
Steven Cameron, the director of Pensions at Aegon, warned that the current system raises intergenerational fairness concerns.
“If the triple lock is left as is, over time, state pensioners will get higher increases than average wage growth. That lacks intergenerational fairness and it’s not sustainable,” Cameron said.
Kemi Badenoch has came under fire for her comments over the state pension
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Labour’s new pension minister Torsten Bell has also proposed an overhaul to the state pension during his time working for a leading think tank, The Resolution Foundation.
Cameron said: “It is fascinating to see Kemi Badenoch showing her cards first in this high-stakes game of state pension poker.
“Indeed, new Pensions Minister Torsten Bell might also be pleased that he’s not the first to show his hand, especially after having previously spoken out in favour of reform.”
The state pension is set to rise by 4.1 per cent in April giving pensioners a boost for the next year.
